This paper develops a theory of capital movements in the presence of potential expropriation. The threat of expropriation is derived from utility maximizing behavior by host countries. Potential investors, anticipating this behavior, modify their investment plans to avoid expropriation. When- ever the host country faces competitive foreign investors expropriation represents part of a time-consistent but suboptimal plan of the type discussed by Kydland and Prescott (1977). The consequent equilibrium may be characterized by a number of distortions. In the simplest model we analyze, a host country faces a large number of potential, competitive foreign investors. We explore the implications of the threat of expropriation for shadow pricing in the host country and for the optimal technology choice by potential investors. We consider variants of the model in which the potential investor is in a monopoly position vis-a-vis the host country, in which the foreign investment project is subject to risk which is unresolved at the time of the expropriation decision, and in which factors affecting the optimality of expropriation by the host country are unresolved at the time of the investment decision. The larger the penalty incumbent on the host country in the event of expropriation, the greater its welfare in the simple, competitive model. When the foreign investor is a monopolist, however, this result is reversed.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
0972.
Length: Date of creation: Jul 1984 Date of revision: Handle: RePEc:nbr:nberwo:0972
Note: ITI IFM Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Email: Web page: http://www.nber.org More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: ().
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.) This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.